Monday, September 10, 2012

Gaps Continued - 09.10.12

MetaStock SPRS Series - Week 85 - TechniTrader® Stock Discussion for MetaStock Users - Gaps Continued - September 10, 2012
By: Martha Stokes C.M.T.

Last week we discussed breakaway gaps and island continuation gaps, both with upside action.

The chart for this week was VC: Visteon Corp, an automotive parts store that is a recent IPO.

This stock has been working on its IPO bottom. The gap is significant because it marks the completing of the IPO bottom.

Chart 1

Although it may appear to be just an everyday common gap due to the small size of the gap, it actually has gapped over a resistance level. Hence, it is another breakaway gap pattern.

Breakaway gaps do not fill usually. Sometimes they may fill partially but most of the time, a gap like this one on an IPO that is bottoming and has high volume activity, tends to behave differently.

In this instance the current price action is a very tight consolidation.

When you see this kind of price pattern with high volume, small candles, and with TechniTrader® Quiet Accumulation TTQA green, then the pattern is indicating that large funds control price.

The largest funds can control their price far better than they could a few years ago due to the increasing use of Dark Pools. These over-the-counter transactions are not displayed intraday on the limit order books at the exchanges.

HOWEVER these orders are part of the overall data that feeds into your MetaStock Charting system end of day. So even though intraday traders do not see these giant transactions firing off during the day, these big purchases are still recorded through the National Clearinghouse as required by law.

So we have a quiet accumulation pattern going on where some funds are entering with very controlled price orders.

These patterns are important for retail traders to be able to identify because often after the Dark Pools have acquired these stocks, IF High Frequency Traders find out, they start buying. The HFTs tend to buy one or two days in a big move.

This is something retail traders can exploit IF they understand the patterns that trigger the automated HFT orders.

So you have two different market participant groups using automated order processing.

One uses Dark Pools or over-the-counter transactions off the exchanges intraday books.

The other uses automated orders on the exchanges trading a 1000 times per second or 60,000 times a minute speed wise.

Understanding what is occurring behind the price patterns is crucial.

By the way, did you know that YOU use a Dark Pool transaction whenever you trade with your online broker. Yes, that is an empirical FACT that the SEC just recently investigated and discovered.

I will be talking about what this really means for retail traders in my upcoming radio talk shows.

Tune in to find out more.

Trade wisely,

Martha Stokes, C.M.T.
Member of Market Technicians Association
Master Rated Technical Analyst: Decisions Unlimited, Inc.
Instructor and Developer of TechniTrader® Stock Market Courses
MetaStock Partner

©2012 Decisions Unlimited, Inc.

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